Carl Icahn sent his howler to the Yahoo board (full text below). Lots of fun we're-mad-as-hell rhetoric--the board's actions have been "insulting" and "deceitful"--and one actual constructive point:

Icahn suggests that, as a way of luring Microsoft back to the table, Yahoo rescind the $2.4 billion employee bonanza severance plan that Jerry & Co. implemented to create a roadblock to a Microsoft takeover.

Icahn goes to great lengths to feign shock at the outrageous details of this plan (some of which were revealed in scandalous color in the lawsuit that was unsealed two days ago). Most of the key details, of course, have been public knowledge since the plan was announced. Also, since the "$2.4 billion" value assumes that every Yahoo employee will quit, the actual cost to Microsoft from the plan is far less, probably in the hundreds of millions. Still, eliminating the plan would make Yahoo less expensive for Microsoft.

This said, Icahn's letter does mark the first constructive suggestion he makes for getting Microsoft back to the table without giving the company away. Striking the severance plan would make Yahoo less expensive. It would also demonstrate Yahoo's commitment to working with Microsoft during the regulatory approval process. In so doing, it would give Microsoft a way to save face but still pay $33 for Yahoo.

Importantly, even Icahn admits that a sale to Microsoft might now be a long shot:

despite your actions to date, there is still some possibility that you can resuscitate a Microsoft offer for the company.

"Some possibility." Even with the severance-plan recission, hardly sounds like a lay up.

Carl Quotes:

- I am amazed at the length Jerry Yang and the Yahoo board have gone to in order to entrench their positions and keep shareholders from deciding if they wished to sell to Microsoft.

- Until now I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies. I never believed that anyone would actually create and activate one in real life. I guess I never knew about Yang and the Yahoo Board.

- I and many of your shareholders believe that the only way to salvage Yahoo in the long if not short run is to merge with Microsoft. ["Salvage"--gotta like that]

I have long been cynical about the effectiveness of many of the boards andCEOs in this country and as a result the inability of our companies to compete.I have constantly complained about how far CEOs and boards will go in order toretain their jobs, yet even I am amazed at the length Jerry Yang and the Yahooboard have gone to in order to entrench their positions and keep shareholdersfrom deciding if they wished to sell to Microsoft.

According to details in a complaint that I became aware of yesterday(details Yahoo fought to keep under seal), Jerry Yang and a majority of theboard went to inordinate lengths to sabotage a Microsoft bid. The complaintstates: "Viewing employee retention as Microsoft's Achilles heel, Yangengineered an ingenious defense creating huge incentives for a massive employeewalkout in the aftermath of a change in control. The plan gives each of Yahoo's14,000 full-time employees the right to quit his or her job and pocket generoustermination benefits at any time during the two years following a takeover, byclaiming a "substantive adverse alteration" in job duties or responsibilities."The damage to Microsoft "is compounded by the fact that Yahoo's thousands ofengineers, known as "Technical Yahoos!," have detailed job responsibilities andqualifications."

Most importantly, Microsoft might never be able to trust a CEO and boardwho, while claiming to be negotiating in good faith, went behind their back andadopted a "plan" which not only sabotages any Microsoft acquisition but went sofar as to completely disable its own ability to rescind the "plan" as long asMicrosoft's offer remains pending. Until now I naively believed thatself-destructive doomsday machines were fictional devices found only in JamesBond movies. I never believed that anyone would actually create and activate onein real life. I guess I never knew about Yang and the Yahoo Board. In myopinion, it will be extremely difficult for Microsoft or other companies totrust, work with and negotiate with a company that would go to these lengths.

It is insulting to shareholders that Yahoo for the last month has told usthat they are quite willing to negotiate a sale of the company to Microsoft andcannot understand why Microsoft has walked away. However, the board convenientlyneglected to inform shareholders about the magnitude of the plan it installedwhich made it practically impossible for Microsoft to stay at the bargainingtable. Could this have been the problem?

Even more deceitful are Yahoo's actions toward its own employees, for whomyou claimed to have set up the "plan". Management neglected to mention to thesesame employees that Microsoft in its proposals had earmarked $1.5 billion ofretention incentives (representing over $100,000 per employee) meant to allayany employee concerns.

Ironically, according to the complaint, this is not the first time thatYahoo has denied shareholders the opportunity of selling to Microsoft at a largepremium. According to the complaint, in January 2007 Microsoft offered topurchase Yahoo at $40 per share but the company rejected that proposal. OnJanuary 31, 2008, Steve Ballmer emailed a letter to Jerry Yang and Roy Bostockmaking a new proposal of $31 per share. The letter recounts Microsoft's priorefforts to acquire Yahoo and noted that Microsoft had given Yahoo time toimplement business strategies designed to turn the company around. Thesestrategies obviously didn't work. The letter went on to state: "Our proposalrepresents a 62% premium above the closing price of Yahoo! common stock of$19.18 on January 31, 2008." Yahoo not only turned down this proposal butsabotaged it. An article in CNET News cited in the complaint sums it up bystating, "Yahoo may indeed agree to Microsoft's [offer], but it will be overJerry Yang's dead body".

I and many of your shareholders believe that the only way to salvage Yahooin the long if not short run is to merge with Microsoft. However, because of HSRconsiderations, to complete a merger of this magnitude will take a period oftime. Even if by some stretch of the imagination the Yahoo board finallydetermines to do the rational thing and sell the company, I fear that, in lightof Yang and the board's recent actions in response to Microsoft's overtures, itmay be too late to convince Microsoft to trust Yang and the current board to runthe company during that period while Microsoft sits on the sidelines with $45billion at risk. Therefore, the best chance to bring Microsoft and Yahootogether is to replace Yang and the current Yahoo board with a board that willnegotiate in good faith with Microsoft and in whom Microsoft will have trust tooperate the company during the long period between signing and closing.

You stated in a press release yesterday that, "Yahoo's board of directorsincluding Jerry Yang has been crystal clear that it would consider any proposalby Microsoft that was in the best interests of its shareholders." However thisis not crystal clear to me. You have allegedly turned down a $40 offer. You haveturned down and sabotaged a $33 offer. Instead, you appear willing to negotiatean "alternative" deal that in my opinion will be worth less than $33 but willentrench the board and Jerry Yang. I understand how these actions are in thebest interests of management and a board whose members each receive $40,000 permonth for several days work, but it is hard for me to understand how theseactions are in the "best interests of the shareholders."

However, despite your actions to date, there is still some possibility thatyou can resuscitate a Microsoft offer for the company. The board can rescind the"severance plan" that is the largest impediment to a Microsoft deal. Youcurrently can do this because Microsoft withdrew their bid 30 days ago. It istime for you to stop misleading your shareholders with respect to Microsoft. Ithas been reported today that when asked to talk about the Microsoft bid, SueDecker indicated that Microsoft made an offer which Yahoo's board didn't feelwas at an attractive enough price. However, one doesn't have to be a rocketscientist to realize there is a simple method to possibly achieve a higherprice. Simply rescind the poison pill "severance plan", which would free upapproximately $2.4 billion and possibly even more which could be added to thebid. It is also time to admit to your shareholders that the severance plan wasnot done for your employees (who you conveniently neglected to inform thatMicrosoft had earmarked $1.5 billion in retention incentives for), but ratherwas done simply as an entrenchment device and to impede a Microsoft bid. If youare not completely disingenuous in your protestations concerning doing "theright thing" for shareholders, you should rescind the severance planexpeditiously and determine if Microsoft is still willing to purchase ourcompany and thereby create a true competitor for Google. I can only hope thatyou will finally do what is in the "best interests of the shareholders."

Carl Icahn calls Jerry a liar and demands that he rescind the $2.4 billion severance bonus plan he concocted to fight off Microsoft. This is actually a constructive suggestion, one that might make a deal more likely.